Capital gain

12 Replies

Hi Guys, when you sell a property that is under an LLC to an other investor, do you have to pay the capital gain?

Please help!

Merci.

Guillaume

Yes, but you might count yourself lucky if you only have to pay cap gain tax.  If you flipped it to him/her you are going to owe FICA and income tax. 

Why do i pay on top of it income tax and what is FICA ?

Did you profit on the transaction?  You owe tax on the profit.(not the total sale price)

Was it a rental?  Only income tax on the profit

If not a rental? It is a business gain. You owe income taxes and FICA(15.3% social sec and Medicare)

Of course profit less overhead.

That is way it works.

Thank you guys,

It is for future deals and wanted to know if i wholesale or flip a property what type of taxes So i will have to pay income tax on profit for a rental properties plus what ?

If it is a fix/flip, income taxes, FICA plus what even if it is a LLC ?

Assuming you didn't elect to have the LLC taxed as a SubS entity, it's like the LLC doesn't exist and you own it personally, for tax purposes. Either way, it doesn't affect cap gains tax, IF the transaction qualifies for cap gains. How long did you own it and what did you do with it while you owned it?

It would help you to sit down for 30 minutes with a CPA for a quick education on how things are taxed. And what you need to do to account for you REI business.

@Guillaume Derouet  , @Arlan Potter  is exactly right.  This forum is a great resource, but you will be better served by sitting down and going through your current situation and your future plans with a CPA.  This will add some substance to the conversation instead of people speaking in "generalities" about a hypothetical situation.

Best of luck and let me know if I can help!

Jake 

Medium transparent background hresJake Hottenrott CPA, Jacob R. Hottenrott, CPA, LLC | 618‑304‑1584 | http://jakehottenrott.com

Is there any CPA Michigan that can help ?

I have a guy in Dearborn who is a CPA and owns a lot of properties.  Let me know if you're interested. - TH

@Guillaume Derouet  I agree you need to discuss this with an accountant.

That said, all income from wholesaling or fix and flipping is ordinary income.  The IRS considers these to be active businesses, not investing.  When you buy a house to fix and flip, it becomes inventory, not an investment.  When you sell it the net gain (selling price - selling costs - fixup costs - buying costs) is ordinary income.  As such you have to pay federal, state, and local income taxes on it.  Further, since you're running a self employed business you will also have to pay self employment tax (SET).  That's both halves of social security plus medicare, about 15% total.  Though if you have a day job and are doing wholesaling or fix and flipping you might hit the limit on income for social security.

Using an LLC has no effect, unless you've elected to be taxed as an S-corp and the IRS has agreed. If you're making a lot of income from wholesaling or fix and flipping, this might be a benefit because it can avoid SET on part of the income.

The IRS views fix and flipping and wholesaling exactly the same as running a shoe store.  Not investing.

Jon Holdman, Flying Phoenix LLC

Originally posted by @Cal C.:

Yes, but you might count yourself lucky if you only have to pay cap gain tax.  If you flipped it to him/her you are going to owe FICA and income tax. 

I should have added instead at the end of the second sentence. 

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